Effect of a School Finance Reform on Housing and Residential Segregation: Evidence from Proposal a in Michigan

42 Pages Posted: 9 Dec 2004

See all articles by Joydeep Roy

Joydeep Roy

Economic Policy Institute; Georgetown University

Date Written: September 2004


Local financing of public schools in the U.S. leads to a bundling of two distinct choices - residential choice and school choice - and increases the degree of socioeconomic segregation across school districts. A school finance reform, aimed at equalization of school finances, can go a long way in weakening this link between housing choice and choice of schools. In this paper, I study the Michigan school finance reform of 1994 (Proposal A) - a state initiative aimed at equalization of per pupil expenditures between Michigan school districts and reducing the role of local financing. I investigate whether the reform had any significant effects on spatial segregation. I find that Proposal A has been responsible for increases in housing stock and property values in the lowest spending school districts, and for improvements in several socioeconomic indicators in these districts, implying a decline in neighborhood sorting. However, there is continued high demand for residence in the highest spending communities. This points to the importance of neighborhood peer effects ('local' social capital) and suggests that in the presence of such effects, even a comprehensive government aid program can fail to make a large and significant impact on residential segregation.

Keywords: Spatial segregation, School finance reform, Tiebout sorting, peer effects

JEL Classification: H4, I2, R2

Suggested Citation

Roy, Joydeep, Effect of a School Finance Reform on Housing and Residential Segregation: Evidence from Proposal a in Michigan (September 2004). Available at SSRN: https://ssrn.com/abstract=630122 or http://dx.doi.org/10.2139/ssrn.630122

Joydeep Roy (Contact Author)

Economic Policy Institute ( email )

1660 L Street NW, Suite 1200
Washington, DC 20036
United States
617 832 5626 (Phone)
703 465 0992 (Fax)

Georgetown University ( email )

Washington, DC 20057
United States

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